(Bloomberg) -- The European Central Bank wants to present the results of its next monetary-policy strategy review already at next year’s annual forum in Portugal, according to people familiar with the matter.
While the ECB will only likely communicate completion in the second half of 2025 to maintain flexibility, internally the idea is to finish the exercise in time for the Sintra gathering that’s supposed to take place at the start of July 2025, the people said, asking not to be identified as talks are private and no final decisions have been taken.
President Christine Lagarde has said the review will be less wide-ranging than the last one, which ended in 2021 and was the first in almost two decades. But while the 2% symmetric inflation goal agreed on then won’t be up for debate, the results could still have implications for future interest-rate actions and the ECB’s response to crises.
An ECB spokesperson declined to comment.
Two work streams are currently planned, the people said — far fewer than the last appraisal’s 13. One will look at the economy and inflation, and another at monetary policy. Preparations — including establishing working groups — began during the ECB’s summer break.
The stream on inflation is aimed at gaining a better understanding of the price-formation process and should draw lessons from the recent spike in prices. The last review was shaped by the pre-pandemic experience of meager inflation.
“We need to ensure that our strategy is effective in both high and very low inflation,” Greece’s Yannis Stournaras said in July.
This stream is also likely to investigate how the ECB can best act amid should supply shocks occur more regularly — for example, from geopolitics, supply-chain disruptions or climate events and policies.
“Many fear that we could face inflationary supply-side shocks more frequently in the future,” Executive Board member Isabel Schnabel said last month. “We should look at how we can reliably fulfill our price-stability mandate in such an environment.”
The second work line will look at monetary policy itself. It’s likely to include discussions on how far the ECB can “look through” supply-driven price shocks – as it did earlier. Officials have become more critical on this, given their recent experience.
Another focus will be on the ECB’s policy instruments, with some urging a discussion about the costs and benefits of quantitative easing.
Though most officials see QE as an efficient tool in times of crisis and to stabilize markets, some also point to significant negative side effects — such as distortions in financial markets and sizable central-bank losses.
Schnabel has called for any future asset purchases to be “more targeted.”
“They should certainly be used in crisis situations for a limited time – but we should discuss in our strategy assessment to what extent it makes sense to buy bonds on a large scale for long periods of time in order to push up inflation.”
This could also have implications for the ECB’s strategy statement — in particular its commitment to “especially forceful or persistent monetary-policy measures to avoid negative deviations from the inflation target becoming entrenched.”
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